Scottish Mortgage has stood firm as the investment trust’s manager said there will be times when its bold investments will “underperform”.
Investors in the once high-flying trust have suffered as much as Scottish Mortgage share price has been beaten for the last 18 months.
But Scottish Mortgage fund manager Tom Slater said he was maintaining his strategy of seeking transformational growth companies.
Slater told investors: ‘Our goal is to find companies with exceptional growth potential and then patiently own them as they deliver. There are times when stock markets reward this approach and times, like now, when they don’t.
‘We constantly review the case for our investments and expect that sometimes our optimism is misplaced. However, we did not review the underlying investment philosophy that has served us well for many years.’
Bad outcome: “We will have periods where we underperform the market, and the half-year in question was one,” acknowledged Tom Slater, a Scottish mortgage manager (pictured).
Scottish Mortgage half-year results revealed that in the six months to the end of September, it fell further behind the global stock market. Its net asset value fell 2.7 per cent, compared with a 4.3 per cent rise in the FTSE All-World index.
But that represented a much better performance than the same six months a year earlier, when stock market turmoil caused by inflation and rising interest rates sent the investment trust giant’s holdings tumbling.
Lower monetary and investment losses helped Scottish Mortgage, managed by Baillie Gifford, post £371.1 million in pre-tax losses for the six months to September, compared with £2.6 billion in pounds in the equivalent period last year.
Known for investing in tech giants such as Amazon and Tesla, the £9.4bn group is popular with private investors.
“We will have periods where we underperform the market, and the half-year in question was one of them,” Slater acknowledged.
Although Scottish Mortgage’s net asset value fell from 816.8p to 787.7p during the trading half-year, it has since recovered to 799p on 6 November.
But Scottish Mortgage shares are still trading at a steep 18 per cent discount to their net asset value, and the trust closed at 676 pence on November 6, around 56 per cent below its November 2021 high.
However, over the long term, Scottish Mortgage has outperformed the broader market, with shareholder returns of up to 45.2 per cent over the past five years, compared to an average of 40.8 per cent across the investment sector. global.
Meanwhile, returns have soared a whopping 358.1 percent over the past decade, versus 185 percent across the broader industry.
After a difficult couple of years, there are strong signs that the technology sector is recovering, driven in large part by the artificial intelligence revolution. Scottish Mortgage supports a number of companies involved in AI.
Slater said: ‘Advances are being made across a wide range of technologies. What makes this so interesting for growth investors is that the number of ways companies can combine these technologies is growing exponentially.
“Accelerated computing drives artificial intelligence, which can be applied to large data sets in the cloud, enabling advances in healthcare, etc.
‘Our companies are more prepared for the future and the opportunities they address are growing at an accelerated pace.
“Economic news is often discouraging and geopolitics rarely reassuring, but the collective creativity and productivity of entrepreneurs is a source of great confidence and optimism.”
Silicon Valley giant Nvidia, whose market capitalization has more than tripled in the past 12 months, is Scottish Mortgage’s fourth-largest holding.
Other tech companies that have seen their shares rebound strongly this year include Tesla and Amazon, two other long-time favorites of Scottish Mortgage.
“Our growth investment portfolio is in good health,” exclaimed Slater, adding: “Financial conditions have pushed companies to focus and prioritize profitable growth.”
The trust’s investment strategy is to find companies with above-average returns that can outperform the FTSE All-World Index over a consecutive five-year period.
These include “transformational growth companies” such as Amazon, Tesla and Chinese conglomerate Tencent, which received early backing from Scottish Mortgage.
One concern among investors is Scottish Mortgage’s significant holdings in unlisted companies, but it defended this approach and said the performance of its core private businesses had been strong.
Slater said: ‘Not all large companies capable of achieving outsized growth are listed on public stock markets.
‘Accessing these opportunities at a reasonable cost is a distinctive part of our role for shareholders.
“Market skepticism around the performance and valuation of our private assets is misplaced and we believe they will be an important source of value creation for the trust in the years ahead.”
Scottish Mortgage’s private company holdings include Elon Musk’s rocket company Space X and TikTok owner ByteDance.
Russ Mould, investment director at AJ Bell, said: ‘The big fear facing Scottish Mortgage is that its unlisted holdings would see their value aggressively written down.
“Interestingly, the stock’s discount to net asset value has narrowed somewhat since the spring, and today’s release of first-half figures may provide a measure of comfort to shareholders as its net asset value fell, but only modestly.”
DIY INVESTMENT PLATFORMS
Easy investing and ready-to-use portfolios
Free Fund Trading and Investment Ideas
Flat rate investment from 4.99 per month
Stock Investment: Community of over 30 million
Free financial advice
Affiliate links: If you purchase a This is Money product you may earn a commission. These offers are chosen by our editorial team as we think they are worth highlighting. This does not affect our editorial independence.
Compare the best investment account for you
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.